Place Your Super Bowl Bet on the Markets

By Jeff HannaFebruary 3, 2013

Today is the Super Bowl. Tomorrow is the day you call your broker with instructions about how to position your portfolio for the coming year based on which team is victorious: San Francisco or Baltimore.

Washington and Lee University finance professor George Kester has been examining the Super Bowl Stock Market Predictor for the past several years. So once the competing teams get to the site of the championship game, George’s phone begins ringing in Lexington, and media start asking him about the study.

This year, for instance, he was interviewed by BBC and quoted on Smart Planet. In previous years, he has been interviewed by NPR and quoted in the Wall Street Journal and numerous news websites such as CNNMoney, CNBC, WSJ MarketWatch, Fortune Small Business and Forbes

Here’s the thesis in a nutshell: If the Super Bowl’s winning team has its roots in the original National Football League, the stock market increases the following year. If the winning team was originally from the old American Football League or is an expansion team, the market will decline.

Using data from the 22-year period of 1967 through 1988, two researchers published a paper in 1990 that concluded the predictor had been accurate 91 percent of the time.

On a lark back in 2009, George decided to extend that original study and fill in the next two decades’ worth of data. From his calculation, he concluded that, during the 42-year period from 1967 to 2008, the predictor had been right 76 percent of the time.

Those findings along with simulated investment results based on the predictor not only led to an article in the Journal of Investing but also put George and the predictor in the spotlight for the last several years come Super Bowl time.

Then, last year, he wondered: If the predictor can beat the market, how would it fare against professionally managed mutual funds?

So George recruited his colleague, Scott Hoover, associate professor of finance, to collaborate on another study. Together, they compared the performance of all 99 mutual funds that have been in continuous operation since the first Super Bowl in 1967 to 2011 , 45 years of Super Bowl results.

Here’s what they found: Their simulated Super Bowl-based, market-timed portfolios outperformed 95 of the 99 mutual funds based upon return and terminal portfolio value. On a more appropriate risk-adjusted basis using the Sharpe (reward-to-variability) ratio, the simulated portfolios outperformed all 99 mutual funds.

“We know full well that this all represents a spurious correlation, but imagine: The predictor outperformed 99 mutual funds—every one of them!” George said.

“The implication of these results is that a portfolio manager could have sat on the couch, munched chicken wings and watched each year’s Super Bowl. Then, depending upon the original league affiliation of the winner, that manager could have either invested in the S&P 500 Index or U.S. Treasury Bills the next day. The time and expense of security analysis and selection would have been avoided, allowing lots of time for tennis, golf, skiing and other leisure activities each year, with the full assurance that his or her portfolio would outperform every one of the other 99 mutual funds over the 45-year period 1967-2011.”

Now, there is one minor complication with this year’s game, and it involves the Baltimore Ravens. Sports fans know that the Ravens franchise was formed in 1996, when late owner Art Model moved the Cleveland Browns to Baltimore. So where do the Ravens fit? An original NFL team or an expansion team?

George and Scott initially disagreed on this matter, but George’s treatment of the Ravens as an expansion team in his previous study won the day. His reasoning was that the original NFL Browns’ nickname, colors, logo and records all remained in Cleveland, and its franchise was suspended until 1999, when it was reactivated.

Others disagree with that view and consider the Ravens one of the original NFL franchises. With that philosophy, it doesn’t matter who wins Super Bowl XLVII, San Francisco or Baltimore, because the markets are going up either way.